Remitly (US:RELY)2021-11-12 14:27Part I – Financial Information Item 1. Financial Statements Unaudited consolidated financial statements as of September 30, 2021, reflect significant asset and equity growth post-IPO, with increased revenue and positive operating cash flow despite continued net losses Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $443,313 | $186,694 | | Total current assets | $647,318 | $345,331 | | Total assets | $664,869 | $362,989 | | Liabilities & Equity | | | | Total liabilities | $177,186 | $186,611 | | Total stockholders' equity (deficit) | $487,683 | $(211,329) | Condensed Consolidated Statements of Operations Highlights (in thousands) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $121,244 | $71,790 | $323,350 | $176,939 | | Loss from operations | $(12,667) | $(1,753) | $(23,183) | $(20,341) | | Net loss | $(12,962) | $(2,429) | $(22,180) | $(23,559) | | Net loss per share (basic and diluted) | $(0.41) | $(0.11) | $(0.85) | $(1.11) | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $19,425 | $(71,176) | | Net cash used in investing activities | $(3,288) | $(3,416) | | Net cash provided by financing activities | $239,665 | $41,850 | - In September 2021, the company completed its IPO, issuing 7,000,000 shares of common stock at $43.00 per share and receiving net proceeds of $305.2 million for the IPO and a concurrent private placement3281 - Concurrently with the IPO, all 127,410,631 shares of redeemable convertible preferred stock were converted into common stock82 Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong revenue growth to increased active customers and send volume, despite rising operating expenses and a widened net loss, with liquidity bolstered by IPO proceeds and a new credit facility Key Business Metrics | Metric | Q3 2021 | Q3 2020 | Growth | Nine Months 2021 | Nine Months 2020 | Growth | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Active Customers (in thousands) | 2,561 | 1,692 | 51% | N/A | N/A | N/A | | Send Volume (in millions) | $5,239 | $3,245 | 61% | $14,488 | $8,429 | 72% | Revenue Performance (in thousands) | Period | 2021 | 2020 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Three Months Ended Sep 30 | $121,244 | $71,790 | $49,454 | 69% | | Nine Months Ended Sep 30 | $323,350 | $176,939 | $146,411 | 83% | - General and administrative expenses increased by 220% for Q3 2021, primarily due to a $6.9 million common stock donation, increased personnel costs, and $2.8 million in IPO-related professional fees180 Adjusted EBITDA Reconciliation (in thousands) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Net loss | $(12,962) | $(2,429) | $(22,180) | $(23,559) | | Adjusted EBITDA | $325 | $578 | $(3,395) | $(13,630) | - The company's liquidity was significantly strengthened by $305.2 million in net proceeds from its IPO and private placement, and a new $250.0 million revolving credit facility established in September 2021123201 Item 3. Quantitative and Qualitative Disclosure About Market Risk The company is primarily exposed to credit risk from payment processors and foreign currency exchange rate risk on cross-border payments, without using derivatives for hedging - The company faces credit risk from pay-in payment processors and disbursement partners, mitigated by engaging reputable partners and performing credit reviews221 - Principal foreign exchange risk arises from rate fluctuations on cross-border payments between initiation and disbursement, especially for the Indian rupee, Mexican peso, and Philippine peso222 - A hypothetical 10% strengthening or weakening of the U.S. dollar would change the fair value of assets and liabilities by approximately $3.6 million as of September 30, 2021222 Item 4. Controls and Procedures Management concluded disclosure controls and procedures were ineffective as of September 30, 2021, due to material weaknesses in IT general controls and segregation of duties, with remediation underway - Management concluded that disclosure controls and procedures were not effective as of September 30, 2021226 - Two material weaknesses were identified in internal control over financial reporting227: - Ineffective design and maintenance of IT general controls for financial systems, particularly program change management and user access controls228 - Ineffective controls over segregation of duties for journal entries, allowing certain personnel to both prepare and post entries without independent review229 - Remediation efforts are underway, including enhanced risk assessment procedures, comprehensive access control protocols, and additional controls over journal entries232 Part II – Other Information Item 1. Legal Proceedings The company is involved in various legal proceedings, but management believes any resulting liability would not materially adversely affect its business or financial condition - Management believes any liability from current legal proceedings would not materially adversely affect the company's business or financial condition237 Item 1A. Risk Factors The company faces significant risks across business, financial, legal, compliance, technology, and security domains, including customer retention, third-party reliance, internal control weaknesses, and regulatory complexities - Business Risks: Success depends on customer retention and growth, managing third-party payment and disbursement partnerships, and effective competition in a crowded market239240244 - Financial Risks: Identified material weaknesses in internal control over financial reporting related to IT controls and segregation of duties, alongside a history of operating losses, may hinder sustained profitability351352260 - Legal & Compliance Risks: Extensive regulation, including money transmission licensing, AML, and sanctions laws, poses significant compliance challenges with potential for substantial penalties248294 - Technology & Security Risks: Vulnerability to cyberattacks, data security breaches, and system interruptions, coupled with concentration risk from reliance on third-party cloud infrastructure (AWS)264271335 - Geographic Concentration Risk: Approximately 70% of revenue in the first nine months of 2021 is from remittances to India, the Philippines, and Mexico, exposing the business to region-specific risks350 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2021, the company issued unregistered securities via stock option exercises and grants, and sold shares in a private placement, with net proceeds from the IPO and private placement used as described in the prospectus - From July 1 to September 30, 2021, the company issued 1,951,856 shares of common stock upon stock option exercise and granted options to purchase 1,040,500 shares430431 - On September 27, 2021, the company sold 581,395 shares of common stock at $43.00 per share in a private placement, raising gross proceeds of approximately $25.0 million432 - The company received net proceeds of $305.2 million from its IPO and concurrent private placement after deducting underwriting discounts and fees of $20.8 million436